European oil stocks finish lower after OPEC holds production target

LONDON (MarketWatch) — Oil stocks on Europe suffered Friday following a decision by the Organization of the Petroleum Exporting Countries not to cut its 30-million-barrel-a-day production target for oil.

The Stoxx Europe 600 oil and gas group was pushed 3.5% lower, and fell 9.5% for the week, after OPEC held to its production target, disappointing those investors who had been hoping for the cartel to reduce output, in an effort address the issue of oversupply and curb the related drop in global oil prices.

Investors also assessed the impact of weak energy prices on eurozone inflation, which fell 0.3% in November, according to data released Friday by Eurostat.

The decline in inflation “just reiterates how serious a problem low inflation levels have become to the European Union economy,” said Jameel Ahmad, chief market analyst at FXTM, in emailed comments. “Now that OPEC has decided against cutting oil production, this has led to even weaker commodity prices and it is anticipated that inflation levels might now decline even further in the short-term. This in itself is going to place further pressure on the ECB to move towards full-blown quantitative easing.”

U.S. crude-oil futures
CLF5, +0.00%
dropped to a more than four-year low, losing more than 6%, to trade just above $69 a barrel. January Brent crude
LCOF5, -0.19%
managed to turn slightly higher after Thursday’s session during which Brent futures hit their lowest since August 2010. Brent is the global oil benchmark.

But travel-related shares were among the best price performers as oil futures fell, considered a benefit to the oil-price sensitive sector. Air France-KLM SA
AF, +2.31%
climbed 6.8%, Deutsche Lufthansa AG
LHA, +0.35%
rose 4.9% and TUI AG
TUI1, -1.91%
moved up 3.5%.

The Stoxx 600 rose 0.6% for the week. Its 3.1% rise for November was the strongest monthly gain since February.

Turning to country indexes, Germany’s DAX 30
DAX, +0.00%
edged up 0.1% to 9,980.85. It finished the week higher by 2.6%, and the month higher by 7%. The monthly rise was the best since January 2012, according to FactSet data.

France’s CAC 40 index
PX1, -0.16%
on Friday rose 0.2% to 4,390.18, pushing up its monthly rise to 3.7%. The U.K.’s FTSE 100 index
UKX, -0.40%
slipped less than 1 point to 6,723.4. It closed November higher by 2.7%, its best monthly run since April.

Inflation: The weakness in energy prices showed up in the eurozone’s November inflation reading. The headline number fell to 0.3%, down from 0.4% in October. Stripping out the effects from energy, food, alcohol and tobacco, core inflation reading stayed at 0.7%.

The data arrived as investors watch the European Central Bank for signs it will launch full-blown quantitative easing, as the eurozone economy grapples with low inflation levels and lackluster economic growth. The ECB will meet next Thursday. Read: These 5 charts show how much Europe needs QE.

With expectations ramping up that ECB will launch sovereign-bond buying, yields on government bonds throughout the eurozone have been hitting all-time lows. The yield on Germany’s 10-year bond
TMBMKDE-10Y, +5.31%
fell to 0.659% on Friday. At the same time, the yield on the 10-year French government bond
TMBMKFR-10Y, -0.25%
dropped to 0.972%, after having dipped below 1% for the first time on Thursday. Yields decline as prices rise.

In other data news on Friday, the unemployment level for the eurozone remained at 11.5% in October. The euro
EURUSD, +0.0617%
late Friday bought $1.2433, compared with $1.2467 on Thursday.

Elsewhere on the currency market, the Russian ruble
USDRUB, +0.8476%fell to new lows Friday following OPEC’s production decision, as Russia takes in roughly 50% of its revenue from exporting oil and gas. The dollar was buying 49.563 rubles compared with 48.795 rubles late Thursday.

Elsewhere on the European radar, Switzerland will hold a vote Sunday on whether the country’s central bank should more than double its holding of gold. The referendum aims to force the Swiss National Bank to hold a fifth of its assets in gold within five years and keep the bank from selling gold in the future.

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